Correlation Between Xinke Material and Shengda Mining

Can any of the company-specific risk be diversified away by investing in both Xinke Material and Shengda Mining at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Xinke Material and Shengda Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Xinke Material and Shengda Mining Co, you can compare the effects of market volatilities on Xinke Material and Shengda Mining and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Xinke Material with a short position of Shengda Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xinke Material and Shengda Mining.

Diversification Opportunities for Xinke Material and Shengda Mining

0.32

Correlation Coefficient

Xinke Material  Shengda Mining

Weak diversification

The 3 months correlation between Xinke and Shengda is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Xinke Material and Shengda Mining Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shengda Mining and Xinke Material is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Xinke Material are associated (or correlated) with Shengda Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shengda Mining has no effect on the direction of Xinke Material i.e., Xinke Material and Shengda Mining go up and down completely randomly.

Pair Corralation between Xinke Material and Shengda Mining

Assuming the 90 days trading horizon Xinke Material is expected to generate 0.94 times more return on investment than Shengda Mining. However, Xinke Material is 1.06 times less risky than Shengda Mining. It trades about 0.1 of its potential returns per unit of risk. Shengda Mining Co is currently generating about 0.02 per unit of risk. If you would invest  210.00  in Xinke Material on September 23, 2024 and sell it today you would earn a total of  202.00  from holding Xinke Material or generate 96.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.62%
Values	Daily Returns

Xinke Material  vs.  Shengda Mining Co

Xinke Material

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Xinke Material are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinke Material sustained solid returns over the last few months and may actually be approaching a breakup point.

Shengda Mining

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shengda Mining Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shengda Mining sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xinke Material and Shengda Mining

The main advantage of trading using opposite Xinke Material and Shengda Mining positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xinke Material position performs unexpectedly, Shengda Mining can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Shengda Mining will offset losses from the drop in Shengda Mining's long position.

The idea behind Xinke Material and Shengda Mining Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.